Favorable Selection in the Labor Market: A Theory of Worker Mobility in R&D Intensive Industries

This paper builds a theoretical model to address evidence on labor mobility patterns in technology-intensive firms engaged in R&D. Labor turnover in these firms is characteristically different from turnover in traditional industries both in size and composition. Specifically, the pool of workers switching employers comprises of relatively productive workers. Our model focuses on distinguishing features of R&D-intensive firms, in particular, the stochastic nature of returns to R&D investment and the transmission of knowledge spillovers through worker movement, to explain patterns of labor mobility in these firms. The analysis also serves as a tool to analyze the role of Non Disclosure Agreements in wage contracts.